Living Trusts

Revocable Living Trusts ("Living Trusts") are very popular estate planning tools for those who seek privacy, flexibility, and the avoidance of court oversight in the ultimate disposition of their assets.

Contrary to common belief, a Living Trust is not actually a separate legal entity, although in many ways it functions as one. More technically, it is an agreement under which you, the Grantor, place your assets under the control of a Trustee – typically you as well, at least initially – to manage the assets during your lifetime and to direct the disposition of them upon your death.

Since the Living Trust is revocable, you may change it at any time with a simple amendment, or you can revoke it all together. And since control of the assets passes to your successor trustee immediately upon death, there is typically no need for probate or other court involvements.

Cost Savings

Depending on the size of your estate, a Living Trust may result in significant costs savings. While more expensive to establish initially, there is a significant cost saving down the road because executor's commissions and court filing fees are eliminated. Related attorney's fees are greatly reduced, or even eliminated, because there is generally little, if any, legal work necessary to wrap up the final affairs. In fact, about the only costs typically involved are:

• Any costs for transferring your assets to the beneficiaries named in your Living Trust (e.g., the costs of brokerage commissions or the expenses of executing and recording a deed);
• Fees for preparing and filing state and federal tax returns (if required);
• Miscellaneous legal assistance which your successor trustee may request at that time.

By contrast, if an individual has only a simple will, or worse, no will at all, the attorneys' fees may be substantial. These fees are customarily similar to that of an Executor's Commission as set forth in Section 2307 of the Surrogate's Court Procedure Act, calculated as follows: 5% of the first $100,000 of probate assets, 4% of the next $200,000, 3% of the next $700,000, 2½% of the next $4,000,000, and 2% of assets exceeding $5,000,000. Additionally, an attorney may ask the court to approve a fee greater than the schedule provides, where the attorney can demonstrate that such a fee is reasonable compensation for the time expended.

Thus, for a probate estate with only $100,000 of assets, an attorney may charge a fee of up to $5,000, plus expenses, or an even greater fee if approved by the Court. Likewise, for an estate of $500,000, an attorney may charge a fee of $19,000 under the schedule, or for an estate of $1,000,000, an attorney may charge a fee of $34,000.

Time Savings

A Living Trust becomes effective the moment you execute it and remains in effect until revoked, or until the trust assets are distributed pursuant to the terms specified in the Trust. The provisions of the Living Trust typically provide for disposition to named beneficiaries upon the death of the Grantor of the Trust, allowing for the immediate distribution of the estate (except for any reserve necessary to pay estate taxes, if any).

Alternatively, you can direct that trust assets continue to be held in trust for your beneficiaries until they reach certain ages, or life events. For example, you might decide that each of your grandchildren will receive half of their share at age 25, and the balance at age 30, but allow your trustee to make early distributions for the costs of college or the down payment on a first home.

By contrast, the probate process takes a minimum of seven months from the time the will is admitted to probate before the estate can be fully distributed. Additionally, a delay of weeks or months may occur before the will is even admitted to probate. It is certainly not unusual for the probate of an estate take a period of years.

Without any will at all, the estate administration process follows a similar timeline, and any distributions to minors will be made upon reaching the age of 18, when they may lack the wisdom and maturity to preserve this windfall.

Privacy Protection

One of the chief reasons for choosing a Living Trust is confidentiality. The only individuals who will typically know the complete terms of your Trust will be you, the successor trustee(s) that you designate, and the attorney who drafts it. Even the heirs to whom you give your estate, through your Living Trust, do not have the right to see all of the documents or to know its expressed terms. It is rare that a Living Trust would be subject to any legal proceeding either during your lifetime or following your demise.

Conversely, a will must be filed with the Surrogate's Court of the County in which you reside, and becomes a matter of public record. Furthermore, a complete copy of your will is sent to certain relatives and heirs (and possibly others) who are then given an opportunity to contest it.

Total Control

You have total control over a Living Trust while you are alive, and the terms of the Trust dictate the disposition of your assets after your demise. This gives many people a sense of control, finality, and certainty. Additionally, as an extremely flexible document, your Living Trust can be amended or revoked completely, even after it has been finalized and funded. During your lifetime, you can simultaneously be the Grantor and Trustee, as well as the beneficiary.

Disability or Incapacity

If you become disabled or incapacitated to the extent that you are no longer able to manage your financial affairs (typically as determined by your physician, or a licensed psychologist or psychiatrist), the successor trustee(s) you designate will assume responsibility for care and control of the trust assets. And of course, the successor trustee(s) have are prohibited from amending the trust to make any changes to the ultimate disposition of your assets.

Additional Considerations

Certain assets pass by operation of law, that is, without probate or court approval. For example, any funds held in a joint account (checking, savings, etc.) pass to the joint account holder immediately upon the death of the other joint account holder, and without any need for probate or court approval. Likewise, any asset which has a named death beneficiary, or "POD" (i.e., Pay On Death), will go to that named beneficiary by operation of law. Such assets may include savings accounts, IRA's, and 401k's. And of course, the named beneficiary of a life insurance policy will receive the proceeds without probate or court approval. Your trust will not control assets that pass to a beneficiary by operation of law, and you should consider retitling the assets or naming your trust as a beneficiary if you want the trust to control these assets.

Also, not all assets should be placed in a Living Trust. For example, "qualified" assets (such as IRA's, and 401k's) should not be used to fund a Living Trust, as the IRS may treat the transaction as a liquidation of the assets, thereby creating immediate tax liability, as well as the termination of future favorable tax treatment.

Fees

Our usual fee for the preparation of a complete Living Trust Package, including a Revocable Living Trust, Last Will and Testament, Durable Power of Attorney, Health Care Proxy & Living Will, and Appointment of Agent for Disposition of Remains is $2,700, and if you have a spouse or partner we will prepare a complete package for that person as well at no additional charge.

If age or health makes travel difficult for you, home visits are available at no additional charge anywhere within Monroe County.

Please call the Law Offices of Todd Gustafson, Esq., at 585-230-6298 with any questions, or to schedule a free initial consultation. Just ask for Todd.